What Will Happen in Toronto If a Foreign Buyer’s Tax is Implemented?

Much has been reported this past week about the BC provincial government starting a “foreign purchasers tax” on homes of 15% effective August 2, 2016.Whether or not this is a justifiable method to limit foreign investment in the Vancouver real estate market remains to be seen, but it certainly rings of a knee-jerk reaction to an issue that in not the entire reason why real estate in Vancouver has risen so dramatically over the past couple of years.In July the Real Estate Board of Greater Vancouver reported that the benchmark price for all residential properties in Metro Vancouver was $917,800 in June, a 32 per cent jump from the same month last year.It’s a broad reach to say that foreign buyers are the cause of such price increases, even if it is as high as 10% of property being purchased are from non-Canadians, although there really isn’t much data to make this a solid number.The issues of BC’s affordability, I believe, are:
• Lack of new developments and lack of available land for development
• International interest in Vancouver as a world class city
• Current Canadian dollar values versus international currency putting a discount on real estate purchases as high as 20%And, as recently pointed out, there are unintended consequences and loopholes to the implementation of this tax.

In Ontario the government will be watching BC’s progress closely and they may even take a cue from what is happening in the west and add a similar tax on foreign purchasers here.

I believe that will be a mistake for several reasons:
• Current affordability is driven by market demand, cheap money and a solid local Toronto economy
• The market will calm itself, and price increases will not be so alarming, once the economy stabilizes and shows signs of growth along with rising interest rates brought about by the Bank of Canada in late 2017 or 2018
• Any sudden changes to the purchase options will negatively affect not only Toronto’s local economy but the Canadian economy as a whole as builders will have fewer clients purchasing and allowing them to move forward with construction

Toronto, as a wonderful example of a world class city, exemplifies the integration and equality that Canada stands for and by putting a financial cost to investment here will reverse the initiative of developers planning new construction as their projects will take longer to sell. This will also set a precedent of protectionism that does not reflect the Canadian marketplace.

Developers are planning construction now based on several factors that will not see completion for several years, including:
• Public transportation expansion
• Highway expansion
• Land reserves being turned into residential and commercial development properties
• Continued interest by investors, inside and outside of Canada, for real estate

Interruption in any one of these points will cause the prices to stop increasing as they have by market forces and not government intervention.

As a real estate investor, Canadian or international, you have the opportunity to take advantage of the current market and realize the return on investment you desire in Toronto.